Managing Staffing Costs:
A Key to Practice Profitability
For professional firms, staffing costs represent the most significant expenditure – and rightly so. Our people are the cornerstone of our success, enabling us to deliver the expertise, skills, and time needed to provide exceptional service to clients. However, as staffing costs continue to grow, maintaining healthy profit margins has become increasingly challenging.
Historically, staffing expenses (excluding equity holders) accounted for around one-third of revenue. Today, this figure often ranges between 38% and 42%, requiring firms to get smarter about managing their overall costs.
Here are four ways your firm can review and refine its approach to staffing costs, improving efficiency while maintaining high levels of service:
1. Review seniority levels
Firms typically employ a mix of seniority levels, driven by the services they provide and the needs of their clients. Over time, however, low turnover can lead to a top-heavy structure, with a higher proportion of senior personnel who may have reached the upper limits of their contribution.
While senior staff are invaluable, periodically assessing your team’s structure can identify gaps or imbalances that may impact profitability. Striking the right balance of senior and junior team members ensures you maintain expertise while averaging down overall salary costs.
2. Analyse average costs
The average cost per staff member will naturally be influenced by seniority levels, but other factors – like location – play a significant role. Practices in regions with higher salaries often face greater cost pressures to attract and retain talent.
Consider whether your team’s structure is suited to your client base. Could more work be delegated to junior team members or staff with specific technical skills? Aligning roles with client needs is a practical way to reduce average costs without compromising service quality.
3. Optimise team size
One of the most significant factors that differentiates highly profitable firms is their approach to staffing levels. While many practices maintain extra personnel to accommodate potential growth or respond to staffing shortages, this can dilute profits, especially when growth slows.
By running leaner teams and focusing on productivity and efficiency, profitable firms ensure they’re maximising the value of every role. Regularly assessing your staffing levels can reveal opportunities to increase efficiency while reducing overhead.
4. Evaluate outsourcing
Outsourcing is a popular strategy for managing rising labour costs and addressing talent shortages. For some firms, it delivers measurable benefits, but for others, the results may fall short of expectations.
Success with outsourcing depends on strategic implementation, ongoing support, and a commitment to the process. It’s not a quick fix – real gains typically emerge over a two-to-three-year period. If outsourcing is part of your strategy, ensure you’re setting realistic goals and dedicating the resources needed to achieve long-term success.
Effective management of staffing costs is a cornerstone of practice profitability. By periodically reviewing your team structure, average costs, and staffing strategy, you can position your firm for both financial health and sustainable growth.
For deeper insights into optimising your practice’s efficiency and productivity, explore Rob Knights & Co’s Efficiency & Productivity Report. For detailed benchmarks on charge rates and salaries, our bi-annual Charge Rates & Salaries reports provide invaluable guidance.
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